This is the fourth installment of an 11-part series on music industry agreements by attorney and legal author Steve Gordon, author of The Future of the Music Business (Hal Leonard 4th Ed 2015). Steve’s earlier installments covered contracts for synchronization licensing, management contracts, and production contracts (from hell). And for extra credit, you may want to check out Gordon’s scintillating look at the dangers of direct publishing deals.
In this article, we’ll discuss music producer agreements in the context of the indie music business rather than standard producer agreements used by major labels. A producer who works on a major label project will generally have an experienced music attorney who will negotiate these deals on their behalf. Often, the upfront money that a small label or an indie artist can offer, if any at all, will not allow a producer to hire a lawyer.
This installment of the series is intended for producers in that situation as well as for indie artists and small labels.
Major Label Producer Deals vs. Indie Producer Deals.
To begin this installment of the series, it’s useful to outline the differences in the agreements that major labels use for producers and the contracts that a producer may encounter in the indie world. A major label deal with a producer will generally include a producer fee ranging from several thousand dollars to much more for a producer with a track record of making hits.
The producer would also usually receive a royalty of 3% to 5%, calculated in the same manner as the artist’s royalty. For instance, if the artist’s royalty is a percentage of the suggested retail price of a record, the producer’s royalty will be as well. Like the artist’s royalty (which typically ranges from 12% to 18%), the producer’s royalty will be subject to multiple deductions, such as packaging costs and a reduced royalty for foreign sales. The producer’s royalty will be deducted from the artist’s royalty, in effect making the artist pay for the producer’s royalty.
Unlike the artist, the producer usually receives his royalty from the first record sold after recoupment of recording costs. This means that once gross income exceeds production costs, the producer is paid for all prior records sales – the artist is not.
When an artist or small label hires a producer, the upfront fees are usually significantly less. Also, since the label and the artist may be the same entity, it does not make sense in many cases to base the producer’s royalty on the artist’s royalty. In that case, the producer’s royalty, if any, may be based on net receipts or “profits.” (See the second and third contracts in this installment.)
Many artists, particularly in hip hop and R&B but also in pop music, work with drum, digital or other percussive “beats” as core elements of their recordings. Often, an artist or indie label will search for the right beat on which to base a song. Although some beats are sampled, others are purchased or licensed from a producer who creates beats with digital drum machines or other studio equipment.
Some producers of beats, such as the Neptunes (Pharrell Williams and Chad Hugo), make more elaborate beats than just drum sounds. A Neptunes production has drum machine sounds, but also usually employs synthesizer riffs, sampling keyboard and other percussive sounds.
The Neptunes created some of the biggest hip hop, R&B and pop hits of the late 1990s and 2000s. So, acquiring a beat from them or Pharrell could be very expensive. However, many new or emerging producers will offer their beats at a low fee or maybe even waive an upfront fee in exchange for a royalty payable if the artist makes money from the song.
In the studio, a producer is ultimately responsible for the final sound of a recording. However, often, an artist will buy a beat or license it and finish the production themselves or with another producer.
Two Copyrights: ‘Sound Recordings’ and ‘Musical Works’
As we discussed in the prior installment on ‘sync’ licenses, copyright law protects ‘musical works’ including songs and any accompanying words as well as orchestral works, librettos, and other musical compositions. But copyright law also protects ‘sound recordings,’ that is, recordings of musical compositions. A beat is usually both a sound recording and a musical composition because the recording of a beat contains a separately copyrightable musical work.
For many years, producers generally did not create new music. They just recorded and tried to enhance songs created by a songwriter who may have been the artist. However, that has changed. Often in pop, R&B, and especially hip hop, producers are creating new music by providing beats or even complete music floors over which an artist sings or a rapper ‘spits.’ In that case, the producer is creating two copyrights: the sound recording and a part of the musical composition.
This is why producers sometimes enter into deals with music publishers (see the next installment of this series on music publishing agreements).
Often, a producer will sell a beat outright. In that case, the buyer will have the exclusive right to use the beat. But other times, a producer will give a non-exclusive license to use a beat, and reserve the right to use the beat for himself or license it to others.
Work for Hire vs. Non-Exclusive License
If the agreement is a sale, it will usually be structured as a ‘work for hire.’ In a work for hire agreement, the producer loses all rights in their beat, including the copyright and the right to use the beat again for any purpose. If, on the other hand, the grant of rights is a non-exclusive license, the producer keeps the copyright, and retains the right to use it or make other deals.
Here is a typical work for hire clause:
WORKS FOR HIRE: Producer agrees that all of the results and proceeds of his services shall be deemed a “work made for hire” for the Company [or Artist] under the U.S. Copyright. Accordingly, the Producer further acknowledges and agrees that Company is and shall be deemed to be the author and/or exclusive owner of the Beat inclusive of the underlying musical composition and sound recording contained in the Beat. Recordings and Musical Compositions contained therein for all purposes and the exclusive owner throughout the world of all the rights of any kind comprised in the copyright(s) thereof and any renewal or extension rights in connection therewith, and of any and all other rights thereto, and that Company shall have the right to exploit any or all of the Beat in any and all media, now known or hereafter devised, throughout the universe, in perpetuity, in all configurations as Company determines. In connection therewith Producer hereby grants to Company the right as attorney-in-fact to execute, acknowledge, deliver and record in the U.S. Copyright Office or elsewhere any and all such documents pertaining to the Beat if he shall fail to execute same within five (5) days after so requested by Company.
It’s always in the producer’s best interest to retain their copyrights. However, sometimes the work for hire clause will be non-negotiable, and then the producer has to ask himself: ‘does the upfront money compensate for the loss of the right to use the beat?’ Generally, when an artist or indie label hires a producer to create a beat and fully produce one or more tracks, the agreement will be a work for hire, but the producer usually receives an upfront and can negotiate a “back-end” royalty.
The amount of the fee, if any, will depend on a variety of factors including whether the deal is a sale or a license. A sale would generally be more expensive than a non-exclusive license under which the producer keeps the right to reuse the beat. But, the most important factor in determining the fee is the business reputation of the producer. A producer with a track record of some successful tracks can demand fees of several thousand dollars or more, and a producer with a track record of hits can command much higher amounts. But licensing, or even buying a beat, from a talented but unproven producer can be a few hundred bucks or less. If the producer receives a royalty in addition to the fee, the fee will be usually structured as an “advance” which will be recoupable prior to payment of the royalty.
As noted above, a royalty for a producer hired by an artist or small label may be structured based on net receipts or net ‘profits.’ A traditional royalty for a producer who works with a big label is 3% to 5% based on the artist’s royalty. Net profits should be defined fairly, for instance, as the gross monies received from the sale or license of the tracks minus the producer’s fee and other production costs (see annotations for the last agreement in this installment.)
Even when an agreement is work for hire, it may be possible for the producer to retain the copyright in his contribution to the underlying musical work, as opposed to the sound recording. In that case, the label or artist will require the producer’s permission to use that contribution so that they can exploit the recording.
In exchange for that permission, the producer usually receives a ‘mechanical’ royalty, i.e., a royalty tied to the use of the underlying musical composition contained in the record. Mechanical royalties are set by statute. The current mechanical rate is 9.1 cents per song per copy sold (or for songs over five minutes, 1.75 cents per minute or fraction thereof). Since the producer probably did not create 100% of the song, for instance, where someone else (perhaps the artist) wrote the lyrics, the producer’s percentage ownership or “split” has to be negotiated.
If the producer’s negotiated share is 50%, then he would receive 50% of ‘stat’ (i.e., 9.1 cents) for each sale of the record containing the song. This would be in addition to his producer royalty which is tied to income derived from the record rather than the song.
Finally, the label usually asks the producer to accept a 3⁄4 of the stat rate (that is, 75% of 9.1 cents). This is called the ‘Controlled Composition’ clause. There is really no justification for it. All the major labels have used it for many years to reduce their pay out to artists who write their own material and to producers who contribute to the creation of songs. The only argument to justify this reduction is that it is an inducement for the label to use the song in the record.
Three Producer Agreements: Two Simple Agreements for a Beat and a Net Receipts Deal With an Indie Record Label
Re-printed below are three different producer deals that a producer working directly with an artist or an indie label may receive. The first license is a simple work for hire deal for the sale of a beat; the second is beat agreement in which the producer receives a royalty in connection with the sale or license of the recording as well as an up-front payment; and the third agreement not only provides a royalty for the recording, but also a royalty in connection with the producer’s contribution to the underlying musical composition.
This simple work for hire agreement for the acquisition of a beat is favorable to the person or company commissioning the beat. Since the agreement is work for hire the producer transfers all his or her rights in the beat to the commissioning party, and that person or company in the beat – both the music and the sound recording.
This agreement is more favorable to the producer as it provides a royalty to the producer and a credit, although it’s still a work for hire and thereby makes the commissioning party (that is, the company or artist) the sole author of the master and the underlying music.
And finally, this agreement is for a series of masters to be fully produced for an indie label. It provides for a royalty for the sale or license of the Recordings just as the prior agreement does. But it also provides for a royalty in connection with regard to the producer’s contribution to the creation of the underlying song. Suppose the Producer created the beat and the artist contributed the lyrics. In this agreement the label would pay the Producer a royalty for use of the song.
The annotations for Paragraph 11 explain how much that royalty would be.
Steve Gordon is an entertainment attorney with over 20 years of experience in the entertainment industry, including 10 years as Director of Business Affairs for Sony Music, attorney at a law firm representing Atlantic and Elektra Records, and in-house music counsel for a Hollywood studio. He is the author of The Future of the Music Business (Hal Leonard 4th Ed 2015).
Gordon gratefully acknowledges the assistance of Ryanne Perio in the preparation of this article. Ryanne is a graduate of Columbia Law School. She is currently an associate at Wilmer, Cutler, Pickering, Hale & Dorr, where she focuses on intellectual property litigation. He would also like to thank Alexandra Howard (Columbia University, BA 2017) and Evan Becker, Esq. for their assistance.
Top image by Erica Zabowski; second image by ‘fr4dd,’ both licensed under Creative Commons Attribution 2.0 Generic (CC by 2.0). [Digitalmusicnews]